The dismal financial performance
of the PNSC is feared to increase the country's already heavy dependence on foreign
shipping companies

By Syed M. AslamMar 06 - 12, 2000

State-owned Pakistan National Shipping Corporation is once again
heading to get back into red. For the first time since 1996 when it managed to revert back
into black the PNSC suffered an operating loss of Rs 54 million for the half-year ended
December 31, 1999.

If the half-yearly financial result is any indication the PNSC is going
to incure huge pre- and post-tax losses and record accumulated loss during the current
fiscal ending June 30 this year. The drastic financial results would pose many hardships
for PNSC whose fleet comprise of 15 vessels with an average life of 18 years 12
breakbulk ships and three containerised vessels which have long passed their productive
lives.

PNSC, which have remained in red most of its existence and had been
bailed out by the government more than once, managed to keep itself in black for four
years since 1995-96 when it reverted back into by earning an operating profit of Rs 59
million. It earned an operating profit of Rs 282 million in 1996-97 which dipped to Rs 204
million in 1997-98 and further to Rs 125 million in 1998-99.

PNSCs accumulated loss increased to Rs 630 million for the
half-year ended December 31, 1999 compared to Rs 469 million in 1998-99. PNSCs
accumulated losses touched Rs 528 million in 1994-95. If the six-monthly result is any
indication it is feared to touch a record high when the year comes to a close on June 30
this year. See the attached Table.

With the imposition of a much stricter safety code by the International
Maritime Organisation the dilapidated fleet would pose many problems for the loss-prone
PNSC. As is, it is paying back loans on the purchase of three used containerised vessels
in 1996 which only started lifting the national cargoes last year after the government
abolished the import duty on cargo vessels. The situation would not only jeopardise any
plans that PNSC have for the induction of more vessels to replace its dilapidated fleet
but also to meet its such day-to-day expenses as repair and maintenance cost of vessels
most of which have long past their productive lives.

What poses a serious challenge in the PNSC is its aging fleet
particularly with the imposition of a much stricter operation and safety standards of the
International Maritime Organisation. With an average life of 18 years the aging PNSC fleet
will mean increasing maintenance, repair and dry-docking (at least twice every five years
to maintain the seaworthiness as per the specifications of Lloyds of London or
A.B. of
USA) expenses.

The dismal financial performance of the
PNSC, the sole shipping liner
of the country either in public or the private sector, is feared to increase already heavy
dependence on foreign shipping companies to cater to the seaborne trade needs. PNSC which
has already been lifting just a fraction of the national cargo is feared to lift even
smaller volume of cargoes in the year to come unless it adds tonnage which looks like a
remote possibility understanding the financial situation of the Corporation. An even more
disturbing question is will Pakistan still have a shipping industry in the near future?

The emerging scenario is discouraging in more ways than one. Number
one, it means spending increased foreign exchange to meet the seaborne trade necessities
of the country through heavy reliance on foreign shippers which already cost the country
over $ 1.8 billion annually. Secondly, and more frighteningly the absence of a reliable
national shipping company could pose a problem in case an eventuality breaks out with the
hostile neighbour as foreign companies are not known to have the dedication to risk doing
business in any such case.

PNSC has consistently blamed the economic sanctions imposed on the
country for using its options to conduct the nuclear test in May 1998 and declining flow
of foreign direct investment into the country as well as the overall sluggish local
economy for its poor performance. It has also blamed the withdrawal of the Right of First
Refusal by the government to lift a cargo after matching the lowest bid. It also blamed
the scarcity of the cargo availability for keeping freight rates at low level to hurt the
profitability.

Despite the measures taken by the government, such as duty-free imports
of vessels, to encourage the private sector investment in the shipping sector has not been
able to achieve the desired results. The lack of interest highlights the need for the
government to come up with a concerted long-term policy to encourage investment in the
shipping sector. Avoiding to tackle the issue any further would have drastic consequences
in the very near future. The time to act is now.